Federal Appeals Court Rules in Favor of Kalshi, Blocks New Jersey's Attempt to Shut Down Sports Markets

In a significant decision, a federal appeals court has ruled that New Jersey is barred from temporarily shutting down Kalshi's sports-related markets, handing the platform a crucial victory against a wave of state-led enforcement actions. The Third Circuit Court of Appeals, in a 2-1 decision, determined that Kalshi's products fall under the federal Commodity Exchange Act, rather than New Jersey's state gambling laws. According to the ruling, Kalshi had self-certified its compliance with applicable laws and regulations, and the Commodity Futures Trading Commission (CFTC) had not deemed its sports-related event contracts to be against the public interest. The CFTC has also not initiated any enforcement actions against such contracts.

The ruling rejected New Jersey's argument that Kalshi's event contracts do not qualify as 'swaps' under the Act, stating that the state's proposed requirements were too stringent. However, a dissenting judge argued that New Jersey's rules did not undermine the congressional objectives of the Commodity Exchange Act and that the products offered on Kalshi's platform constituted sports gambling. The decision comes as states across the US have been filing lawsuits or issuing cease-and-desist orders against prediction market providers, including Kalshi and Polymarket, alleging that their sports-related contracts violate state gambling laws. The CFTC has maintained that prediction markets are governed by the Commodity Exchange Act, which preempts state rules.

The ruling has significant implications for the ongoing debate over the regulation of prediction markets, with different courts issuing conflicting decisions. While the Third Circuit's ruling suggests that prediction market providers may prevail in their argument that the Commodity Exchange Act preempts state rules, other courts have reached opposing conclusions. The CFTC Chairman has emphasized the importance of defending the regulator's exclusive jurisdiction over these markets, and the agency has filed an amicus curiae brief in support of this position.